When it comes to predicting the direction of a stock or commodity, investors follow two research methods: fundamental analysis and technical analysis. Where fundamental analysis looks at a company’s financial statements to predict a trend, technical analysis uses a wide variety of charts to help identify patterns and predict future prices.
Technical Analysis of Stocks
One of the first places investors look when they
consider adding a new equity to their portfolio is the chart of the stock. In fact, for many investors, the chart of the underlying stock or commodity is the starting point. That’s because charts provide a quick snapshot of the company’s price movement over the last month, quarter, year, or even decade. Beyond that quick snapshot, however, a chart provides a lot of detailed information that could be missed by a novice trader. With the right technical analysis trading courses, investors can learn how to understand the different factors at play on a chart, decide whether it is worth trading, and find good entry and exit points. A comprehensive understanding of chart patterns also helps investors discern which stocks are worth avoiding. There are several questions you need to ask yourself when you look at a stock chart:
- What stage is the stock in?
- Is it in an uptrend or a downtrend?
- What are the trendlines?
- Which wave is the stock in?
- What are the moving averages?
- Are there wide range candles?
- What are the support and resistance areas?
- What do the volume levels say?
- Is the stock at a Fibonacci level?
These questions are just the tip of the iceberg when it comes to how seasoned investors look at charts.
Understanding Chart Patterns
In spite of the fact that traders are human and unpredictable, technical analysis assumes that prices move in trends and that history will repeat itself. While the daily movements on a chart may look random, stocks move in measurable trends. As a result, investors who approach stocks through the lens of technical analysis understand that charts can be used to uncover trading signals. Some technical traders don’t even care what the company’s name is or what they do; the chart is the only tool they use. For example, chart patterns can signal to traders which direction the security is going to move in. Unfortunately, identifying chart patterns is not an exact science and is often viewed as more of an art. One of the most popular and reliable chart patterns is the “head-and-shoulders” pattern. As the name implies, the pattern on the chart looks like a head with two shoulders. It’s an example of a reversal pattern. At the same time, the inverse of a “head-and-shoulders” pattern signals that the stock or equity is set to rise. A bullish chart pattern is a “cup-and-handle,” resembling the shape of a tea cup as its name says. The pattern can range from showing several months to more than a year. Again, reading charts is something you learn to do. There are several nuances to the “cup-and-handle” that will help investors find possible trading signals, once they learn what to look for.
Learn-To-Trade.com: The Leader in Technical Analysis Courses
Taking a technical analysis course from Learn-To-Trade.com will teach investors how to read, decipher, and predict price movement based on a stock’s chart. As one of the oldest independent Canadian educators in the financial market, Learn-To-Trade.com will also show you how to recognize and understand chart patterns and confidently manage individual investments to create better returns. For more information on Learn-To-Trade.com and its stock market analysis courses, visit our web site at
www.Learn-To-Trade.com. Or, contact us by phone at 416-510-5560 or by e-mail at
info@learn-to-trade.com.